The US Securities and Trade Fee (SEC) desires almost $5.3 billion in fines from Terraform Labs and its former CEO, Do Kwon for violations of the US securities legal guidelines and costs of fraud.
The company detailed its requested fines in an April 19 authorized submitting. The SEC is primarily looking for $4.2 billion in disgorgement plus $545.7 million in prejudgment curiosity.
The disgorgement goals to have Terraform Labs and Kwon give up “unjust enrichment” earned from token gross sales to institutional traders, gross sales by way of a Luna Basis Guard contract with Genesis Asia Pacific, and gross sales on crypto exchanges between June 2021 and Could 2022.
The regulator can also be looking for civil penalties, together with a $420 million high quality in opposition to Terraform Labs and a $100 million high quality in opposition to Kwon.
The SEC mentioned every civil penalty is a small fraction of the defendants’ ill-gotten positive aspects however acts as punishment and deterrence.
Extra restrictions
The SEC additionally requested nonmonetary cures, together with “obey-the-law” injunctions stopping violations of the Securities Act of 1933 and Trade Act of 1934.
Moreover, the watchdog intends to impose conduct-based injunctions stopping the defendants from participating within the buy, provide, or sale of crypto asset securities, together with however not restricted to Terra-related tokens reminiscent of UST, MIR, LUNA, wLUNA, and LUNA 2.0.
It additionally goals to stop the defendants from “inducing” others into such transactions.
Moreover, it goals to stop Terraform Labs from discharging its financial cures by chapter. The agency filed for Chapter 11 chapter safety in January.
The company additionally intends to completely bar Kwon from serving as an officer or director of a publicly held firm and compel him to offer a sworn accounting.
Terraform and Kwon reply
The defendants responded to the anticipated cures in associated filings.
First, Terraform Labs’ authorized staff mentioned that the court docket should impose cures based mostly solely on token gross sales confirmed to have occurred within the US. It asserted that the majority conduct and gross sales occurred outdoors the US and that court docket proceedings haven’t but addressed this matter.
Terraform’s authorized staff additionally asserted that the SEC will not be entitled to disgorgement due to an absence of pecuniary hurt or “out-of-pocket loss.”
Kwon and his authorized illustration additionally argued an absence of pecuniary hurt and denied there may be proof that Kwon obtained ill-gotten positive aspects individually from Terraform Labs. The related submitting reads:
“There are not any unlawful income for Mr. Kwon to disgorge.”
Each events asserted that most civil penalties ought to be decrease than the SEC’s requested quantities. In a single estimate, Terraform Labs’ protection recommended a most civil penalty of $3.5 million, whereas Kwon’s protection recommended a civil penalty beneath $1 million.
Each events additionally argued that injunctions are unwarranted and recommended that additional offenses are unlikely based mostly on present circumstances.
The SEC initially filed costs in opposition to Terraform Labs and Do Kwon in February 2023. The trial started in March, and the court docket discovered each events accountable for fraud in April.
